A prominent New York bankruptcy attorney and deal maker has reached a tentative deal to give back $978,000 that he received from Tom Petters and related businesses while Petters’ $3.5 billion Minnetonka-based Ponzi scheme was active.

Paul Traub, who provided advice and business leads to Petters for three years starting in 2005, received a total of nearly $2.5 million from Petters. Earlier this summer, Doug Kelley, the receiver in the Petters’ criminal case, filed suit against Traub, attempting to claw back part of the payments. Much of the money Traub received came from Petters’ personal bank account.

The tentative deal filed Friday, Aug. 17, which would still need approval by a federal court judge, has Traub paying $900,000 cash and transferring his $78,000 interest in EPB Select Holdings — once a Petters’ subsidiary — to the receiver.

The two sides met in July for mediation sessions with Nancy Dreher, a U.S. Bankruptcy Judge in Minnesota, court papers say. While those sessions didn’t produce a settlement, Traub and the receiver continued to negotiate and later reached a deal.

The claw back case against Traub said some of the payments were channeled through Petters’ personal accounts to hide detection by other Petters’ employees, conceal the relationship and maintain the fraud scheme.

Petters, once a high-profile Twin Cities businessman, was found guilty in 2009 and is serving a 50-year prison sentence for leading the Ponzi scheme.

— John Welbes

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